Profitable Agencies have profitable clients. That much is obvious.
Growing an Agency will be so much easier and rewarding if you can identify and avoid those profit vampires before they steal your time and destroy your margins.
It isn’t always easy to tell if a new client is going to be profitable or not. There are some warning signs that should start alarm bells ringing. Here are a few;
– Lack of written briefs. This will always increase the chances of an unhappy client and an unprofitable agency. If the client won’t commit to a written brief with clear objectives then the risk of wasting more (unpaid) time later down the line will increase.
– An over powerful procurement department at the pitch. This can be a good thing but only if you have an experienced procurement contact. Otherwise it can be a box filling exercise and an over reliance on the cost plus spreadsheet.
– You never get to know what the budget is. I’m not sure how many industries rely on a guessing game when it comes to this vital bit of knowledge but it always strikes me as odd. It’s certainly not conducive to a profitable relationship.
– 120 Credit terms/Payment to be on a “roster”. Both are, unfortunately, gaining ground in the client/agency relationship. Headlines in the trade press appear regularly and there is a hue and cry but still no shortage of agencies wishing to pitch for a piece of work which has got profit vampire written all over it.
– Scope changes. Everyone is allowed to change their mind but constant changing and creeping scopes should set alarm bells ringing.
– Constant references to “cheaper” quotes elsewhere to beat your price down. Unknown agencies that could undercut you is a classic warning sign. If your client is buying on price rather than value you a supplier and not a trusted partner.
– You are over reliant on one major client. You will do anything to keep them happy because they are such a large part of your business. That will, inevitably, lead to doing stuff for free. Clients like to feel they are important but you need to strike a balance if they ask – they are important but you could survive if they left. Try to make sure no one client is more than 15%-20% of your total revenue.
– A demotivated team who are having to constantly firefight a difficult client. Relationships are key and if you have a difficult one the odds are it will be on an unprofitable piece of business.
– You have many budget holders with a bigger client as well as weak central control. You could well find yourself juggling multiple demands with little overall strategy.
This isn’t an exhaustive list but if any of your clients exhibit these behaviours the odds are that they will be hitting your margins.